Feedback, page-46

Damn. Great post!

You have analysed it far more deeply than I have, but I have come to many very similar conclusions. On the numbers side of things, I agree completely that with debt now down to fairly manageable levels, it appears that the market has not yet appreciated this fact, and is still pricing it at a level more appropriate to companies with much more substantial bankruptcy risk. This is probably (in my view) largely because of a such a long downward spiral of revenues, and earnings, and previous debt servicing issues (requiring capital raisings) in tandem with the downturn in the commodities sector. There has been a lot to be negative about for a long time. But as you say, we must assess the company as it stands now in order to gauge its worth. I came up with a conservative range of 20c - 30c if all the assets were sold at discounts similar to prior sales, however I think that will most likely be unnecessary. I wouldn't want to put a worst case scenario figure on it, in my experience the worst case is almost always worse than can be fathomed in foresight. I agree with you though, assuming they can continue to pay down debt (which it appears they are doing) sooner or later the market will realise it is not such a risky stock and "re-rate" it to a level at least more in line with its realisable NTA, possibly higher.

On the more qualitative side of things, the upside is large from here. Assuming a reversion to mean within the commodities sector where exploration and development levels increase to an average longer term level, bol would be operating in a sector where some of its competitors have gone bust. In that scenario, margins would increase, operations would expand, etc. The cyclical nature of commodities cycles could allow for a run for several years. Of course, a more pessimistic view (which may be just as valid) where the commodity downturn goes even deeper gives a different result. I view this as unlikely, the supply/demand equation has been sorting out commodity oversupply for several years now with lower prices, and it is working.

I'm going to have to re-read and think about the first part of your post around the stock price adjusted for dilution. Do you mean for stockholders that participated in all the equity raisings, they would be down 55% in comparison to those that did not, who would be down the larger percentage (98%)? With these sort of stocks, that have had several equity raisings, I feel like I am able to ride off the capital put into the business from prior shareholders (although companies that raise capital frequently are usually weak businesses in my experience). For example, the 30c raising you mentioned that raised $87m, increased the book value of bol by $87m. But now, the market is saying the whole company is worth $38m. I feel that those equity raisings helped to lower the risk profile of the company, and I can now buy a piece of it at a level that is much lower than the amount put in to de-risk it. Recently I purchased cdd and ang (which I consider similar to bol in terms of risk profile and value, however I was slightly more confident in bol and put a tiny bit more into it) and they both soon after have launched capital raises (run by private equity). In the turnaround scenarios if you can get in at the last capital raising, or even better, after the last capital raising, but at a cheaper price, it can work out well. A recent read, I am trying to remember the company, it might have been Geico, that Buffett invested in when it was on the brink of bankruptcy. A large capital raising, while dilutionary, de-risked the balance sheet and the stock soared. One point of difference though it was at the time a stronger underlying business than the one we are looking at. Apologies for going off on a tangent.